A Comparative Study of Foreign Remitance of Jamuna Bank

EXECUTIVE SUMMURY

Remittance business is a good source of income for any bank. Transferring the money for others, the bank earns some money through charging some amount .Not only that, the bank can use the remittance amount as a short-term investment .As a good source of income, JBL is desperately looking for better performance to compete with other banks in the banking market.

This study investigates the foreign remittance activities of JBL. These activities include transfer of fund form one country to another country, giving payment to the beneficiary, amount of remittance that comes into the country through JBL “Nostro account ” The study also describes the formal and informal channels through which remittance remit in Bangladesh.

The study is based on the secondary data. Data was collected from different article, websites, various publications and company records.

Remittance can be remit through two ways, formal and informal channels. Formal channels include Banks, Money Exchangers, post office and private agencies. On the other hand, informal channel means Hundi, which is totally illegal and the person who use this channel actually doing crime and s/he avoids tax payment.

Foreign remittance is the profitable source of income for JBL. Migrant and the wage earners are the customers who remit foreign currency through official channel. So the remittance processes goes through some rules and regulations of Bangladesh Bank and Foreign Exchange Control House. But the problems arise in the economy of the country when people involve in the money Laundering. Marinating the rules and regulations that are provided by the Bangladesh Bank. JBL tries their best to increase the flow of remittance through channel.

The findings of the study suggest that, the remittance flow will increase in a large amount, if the formal channel could decrease the complexity in the remitting process. The development and implementing of private agencies will increase the remittance flow through channel also. Finally, Government has to take some effective to encourage remitters, foreign investor’s beneficiaries as well as general public to use formal channel, which will increase foreign currency reservation and generate more revenue for the country.

1.1 Introduction

The internship program is an integrated part of the B.B.A program of the Stamford University. This internship program creates a unique opportunity for the students to apply their theoretical knowledge into practice and gain valuable real world business experience. During this program students can also realize prevailing business conditions and can have opportunities to solve the problem by using various analytical tools. With this view I was attached with a challenging private commercial bank named “Jamuna Bank Limited” for a period of eight weeks.

1.2 Research Objective:

(a) Broad Objective:

The Broad objective of the report is to know the overall foreign remittance activities, problems and performance of Jamuna Bank Limited as a private commercial bank.

(b) Specific Objective:

The specific objectives of the report are as follows –

To fulfill the course requirement of B.B.A program of Stamford University.

To apply theoretical knowledge in the practical field.

To observe and analyze the performance of the specific branch and the bank as a whole.

To be acquainted with day-to-day functioning of foreign remittance activities.

To study existing banker customer relationship.

To comply with the entire branch banking procedures.

To make a bridge between the theories and practical procedures of banking day-to-day operations.

To analyze the performance of the branch as well as JBL as a whole.

1.3 Structure of the Study:

The department of foreign exchange works and coordinates among foreign remittance activities.

1.4 Scope of the study

Although operational activities are very fast in the commercial banking sector of Bangladesh, this study is limited to the foreign remittance activities of the bank. Functions covered by the Head Office of Jamuna Bank Limited has been chosen as a model case and covered by this report. As the main objective of this report is to develop a general remittance guideline, it does not go to the further depth of any specific and specialized functions. Financial information regarding the bank draws on the recent publication of their Annual Report.

1.5 Methodology:

Both the primary and secondary form of information is used to make the report more meaningful and presentable. The details of these sources are given below:

Practical work exposure from the different desk of Foreign Exchange Department of the Branch..

Observation of banking activities.

Appointment with the top officials of the Bank.

Relevant file study as provided by the officers concerned.

(b) Secondary Sources:

The organization part of the report is mainly based on secondary data. I have elaborated different types of secondary data in my research. Sources of secondary information can be defined as follows:

Internal Sources:

Annual Report of Jamuna Bank Limited.

Foreign Exchange Manual.

Website of Jamuna Bank Limited.

Different newsletters of JBL.

Prior research report.

Any information regarding the Banking sector.

Different books on foreign exchange.

External Sources:

Various book, articles, compilations etc regarding Foreign Exchange

Operations.

The Internet was also used as a theoretical source of information.

Newspapers.

1.6Limitations of the Study:

While conducting the study, there were some limitations. The main limitations were:

It was difficult to make information based rich report in a short time period.

Like any other research, this report is limited to the time constraints and twelve weeks time is not sufficient to cover such wide area.

For the security of the bank many information was not opened.

One of the main barriers of the report was the confidentiality of the data.

Information relating to financial institutions is very sensitive that is why only secondary data has been collected for this report. This limitation failed to make this report sometimes to be most updated.

Although the bankers tried their best to help me but their nature of job is such that gives them little time to discuss.

Being along, this report has been suffered from severe manpower constraints.

2.1Legal Status and nature of the Jamuna Bank Limited:

Jamuna Bank Limited was incorporated in Bangladesh on 2nd April in the Period 2001 as a public Limited Company under Companies Act, 1994. The Bank within the stipulations laid down by the Bank Companies Act, 1991 and directives as received from Bangladesh Bank and applicable to it from time to time provides all types of commercial banking services.

2.2Nature of the business:

The principal activities of the bank are providing all kinds of commercial banking services to its customers.

The other activities of the bank are providing of all kinds of Islamic banking services to its customers.

2.3 Capital and Branches:

Jamuna Bank Limited is a highly capitalized new generation Bank with an Authorized Capital and Paid-up Capital of Tk.1600.00 million and Tk.390.00 million respectively. The Paid-up Capital has been raised to 1225.71 million and the authorized capital has been enhanced to tk.4000.00 million as on December 2007. Currently the Bank has 43(Forty three) branches 18 in Dhaka, 2 in Gazipur, 8 in Chittagong, 3 in Sylhet, 1 in Bogra, 2 in Naogaon, 1 in Munshigang and 1 in Narayanganj, 1 in Rajshahi, 1 in Basurhat, 1 in Noakhali, 1 in Shirajgonj, 1 in Dinajpur and 1 in Kushtia ,1 in comilla (including nine Rural and 2 Islamic Banking Branches) 4 branches will be opened at commercially important locations during the year 2009.

To provide clientele services in respect of international trade it has established wide correspondent banking relationship with local and foreign banks covering major trade and financial centers at home and abroad.

2.4 Vision:

To become a leading banking institution and to play a pivotal role in the development of the country.

2.5 Mission:

The bank is committed to satisfy diverse needs of its customers through an array of products at a competitive price by using appropriate technology and providing timely service so that a sustainable growth, reasonable return and contribution to the development of the country can be ensured with a motivated and professional work force.

2.6 Strategic Planning:

As the financial services industry is a very competitive industry to be in so the main strategy of JBL will be on organic growth – to build branches and strengthen their distribution network. They will continue to invest and expand in Bangladesh as fast as local regulations allow.

The principle strategies are-

People– Attract, retain and reward top performers

Profitable Growth– Growing sales and increase the revenues

Execution– Performing With skill and speed

Credit Quality– Maintaining credit Quality and understand the role in managing losses

Customer Centered– Always Providing exceptional customer service

Ownership– The performance and results should be owned

Efficiency– Lowering the costs and wise use of resources.

2.7 Growth of Jamuna Bank:

Jamuna Bank Ltd., the only Bengali named new generation private commercial bank was established by a group of winning local entrepreneurs conceiving an idea of creating a model banking institution with different outlook to offer the valued customers, a comprehensive range of financial services and innovative products for sustainable mutual growth and prosperity. The bank has already ranked as one of the quality service providers & is known for its reputation.

2.8 Corporate Slogan:

“YOUR PARTNER FOR GROWTH”

2.9 Corporate Culture of JBL:

Employees of JBL share certain common values, which help to create a JBL culture-

The client comes first.

Search for professional excellence.

Openness to new ideas and new methods to encourage creativity.

Quick decision-making.

Flexibility and promote response.

A sense of professional ethics.

2.10 Growth Index and Future Plan:

Dealing room service for corporate customers and high net worth individuals.

Introducing more innovative product and services.

Opening new branches including Islamic Branches.

Expansion of business network at home and overseas.

Full duplex online banking system.

SMS Banking.

Merchant Banking.

Enhancing in-house training facilities.

By modernizing the training institute.

Innovation and introduction of new liabilities/asset products

2.11 Organogram of JBL:

2.12 Management of Jamuna Bank Limited:

Highly professional people manage JBL. The present managing director of the bank is a forward-looking senior banker having decades of experience and multi discipline knowledge to his credit both at home and abroad. An educated and skilled professional team supports him with diversified experience in finance and banking. The management of the bank constantly focuses on the understanding and anticipating customer’s needs and offer solution thereof. Jamuna bank limited has already achieved tremendous progress within a short period of its operation. The bank is already ranked as one of the quality financial service providers and knows for its reputation.

2.13 Departments of Jamuna Bank Limited:

It would be very difficult to control the system effectively, if the jobs are not organized considering their interrelationship and are not allocated in a particular department. If the departments are not fitted for the particular works there would be haphazard situation and the performance of a particular department would not be measured. Jamuna Bank Limited has done this work very well. There are –

Human resource Department.

Financial and Administration Department.

Monitoring and Inspection Department.

Marketing.

Personal Relation Department.

Merchant banking and Investment banking.

Treasury Division

International Division.

General Services Division.

Computer and Information Technology Department.

Credit Division.

Corporate Affairs Division.

Card division.

Board Audit Cell.

2.14 Products and Services of Jamuna Bank Limited:

Figure 2-1: Products and services of Jamuna Bank limited

2.15 New Product & Services:

The bank has its concentration for new product and services development for satisfying its customer and increasing its customer base. The bank firmly believes that technology based product and services will play significant role in the performance of the bank as people are getting more conscious about their service quality. They prefer now faster service with least cost. For delivering faster service, the bank has introduced diversified technical ways that are stated below –

Online Banking Services

Debit Card

L/C Delivery Services

Telephone Banking(a)

Sms Banking Services

Internet Banking Services

2.16 Automation in Banking Operation:

2.16.1 IT Infrastructure Strategy:

At present, all the branches of the bank are now in an automated environment as far as customer transactions are concerned and excepting a few branches in locations not accessible by Leased Line, all other branches are under Wide Area Network. They are in a process of selecting a robust retail banking software as a total solution to their needs.

2.16.2 On-Line Branch Banking:

The bank has set up a wide Area Network (WAN) using leased date circuit and leased Public Switch Date Network (PSDN) across the country to provide on line facility to its valued clients. For remittance and fund transfer purpose, customers could take the advantage of online facility.

2.17 Debit Card:

The bank had already completed almost many years of operation in card business. Because the card market had showing growth with the increasing acceptability of plastic money in many outlets, the business had become intensely competitive. More players had entered into the market and some others were preparing for entry into the same. As increasing number of customers were turning to the convenient features of debit card usage, the bank had stepped up marketing efforts to retain and enhance the market share.

2.18 SWIFT:

Jamuna Bank Limited is the member of SWIFT (Society for Worldwide Inter-bank Financial Telecommunication). SWIFT is a member owned co-operative, which provides a fast and accurate communication network for financial transactions such as Letters of Credit, Fund transfer etc. By becoming a member of SWIFT, the bank has opened up possibilities for uninterrupted connectivity with over 5,700 user institutions in 150 countries around the world.

SWIFT No.: JAMUBDDH

2.19 Financial Performance of JBL:

Financial Performance of this Bank were growth continuously, those are shown in below:

2.19.1 Profit:

In 2008 Jamuna bank limited posted an operating profit of tk.824.21 million as against tk.701.32 million in 2007 with a growth of 17.52 percent over the preceding year. After having made necessary provisions for loans and advances tk.419.16 million in accordance with the instructions of Bangladesh bank net income before tax (NIBT) stood at tk.405.04 million in the rear under review against tk.499.97 million in the preceding rear. An amount of tk.315.93 million has been kept as provision for payment of tax. Thus Net income after tax and provision stood at tk.89.11 million in 2008 which was tk.253.40 million in 2007.

2.19.2 Import business:

The total import business handled by the bank in 2008 was tk. 22191.84 million compared to tk.15457.66 million in the preceding year registering a rise of tk. 6734.18 million being 43.57 percent. A sizeable L/C was also opened by the bank in the year under review. The import items included individual raw materials machinery, consumer goods, fabrics, accessories etc.

Figure 2-3: Foreign Exchange Business – Import

Figure: 2-3, Foreign Exchange Business – Import

2.19.3 Export Business:

The bank handled export business worth tk. 13990.33 million in the year under report in 2008 export business handled by the bank was tk. 11583.64 million. Thus there was an increase of tk. 2406.69 million in export business handled by the bank, being 20.78 percent over the preceding year. The major export item was ready made garments.2.18

Figure 2-4: Foreign Exchange Business – Export

Figure: 2-4, Foreign Exchange Business – Export

2.20 Performance analysis of JBL:

Seven years at a glance (Figure in million – where applicable)

SI. NO.

Particulars

Year-2008

Year-2007

Year-2006

Year-2005

Year-2004

Year-2003

Year-2002

1

Authorized Capital

4000.00

1600.00

1600.00

1600.00

1600.00

1600.00

1600.00

2

Paid up Capital

1225.71

1072.50

429.00

429.00

390.00

390.00

390.00

3

Reserve Funds

651.92

629.33

487.46

245.65

93.97

15.56

0.18

4

Tier I Capital

1651.58

1562.47

807.14

607.32

451.37

390.22

390.00

5

Tier II Capital

221.14

139.36

109.32

67.33

32.60

15.34

0.18

6

Deposits

20924.02

17284.81

14454.13

10450.16

6614.06

3251.90

1940.12

7

Advances

16617.45

12796.63

11011.83

6722.80

3239.52

1514.28

349.21

8

Investment

5390.03

2552.67

2037.84

1163.70

935.48

330.38

70.05

9

Import Business

22191.84

15457.66

12151.90

7923.90

3801.21

1448.77

125.20

10

Export Business

13990.33

11583.64

6521.80

4790.80

3068.51

1132.81

90.12

11

Total income

3102.99

2749.90

1727.2

1397.27

846.73

391.20

229.46

12

Total Expenditure

2278.79

2048.58

1307.26

1088.44

717.86

375.99

229.28

13

Operating profit

824,20

701.32

419.94

308.83

128.88

15.20

0.18

14

Profit before tax

405.04

499.97

363.31

273.70

110.97

0.37

–

15

Profit after tax

89.11

253.40

199.82

155.95

61.14

0.22

–

16

Fixed assets

174.40

137.36

106.46

97.99

66.60

50.44

28.72

17

Total assets

26405.40

20157.02

16863.77

13491.52

9766.79

5290.60

4210.16

18

Contingent

6409.26

6574.38

5445.68

2903.96

177.76

891.54

145.94

19

Number of branches

35.00

29.00

23

19

15

8

3

20

Number of employees

861

631

525

447

314

253

115

21

Number of correspondents

715

643

390

333

250

152

92

22

Income from investment

474.48

255.66

126.30

80.44

27.37

15.48

2.58

23

Earning per share taka

8.04

31.94

46.58

36.35

14.25

0.06

–

24

Net assets per shara taka

135.14

145.68

188.14

141.57

115.74

100.06

100.00

Source: Annual Reportof JBL, 2008.

Foreign remittance is the transfer of money from one country to another country. In another word, foreign remittance means, remittance in foreign currency that are received in and made it abroad. ILO 2000 states that, international remittances are defined as the portion of migrant workers earnings sent back from the country of employment to the country of origin. Actually, foreign remittance is purchase and sale of freely convertible foreign currencies as permissible under exchange control regulations of the country.

During the 18th and 19th centuries, development impact of migration was mostly recorded in the context of receiving states whereas since 2nd world war migration experience underscore positive economic and social benefits for both receiving and sending countries. Remittances are substantive yardstick of macro level benefits in sending countries. Various figures indicate that flows of migrant remittances from sending to receiving countries are continuously growing. Global figures state that official remittances have increased from less than US$2 billion in 1970 to US$80 billion in2000 (ILO, 2002). This does not include informal transfers. Micro studies countries like Pakistan and Bangladesh have shown that only around half of the remittances are transfers through official channels and the rest find their way through different unofficial methods. Consequently the actual amount of remittance is likely to be at least double the officially recorded figures. Sixty percent of global remittance flow is towards developing countries (Sorensen 2004). This figure is more than global official development assistance (ODA) as well as capital market flows (Gameltoft, 2002) to those countries. When compared with foreign direct investment (FDI) in those countries, amount of remittances are over half of total flow. Moreover, remittances as source of financial flows are found to be more stable than private capital flows and to be less volatile to changing economic cycle (Ratha, 2003). International organizations like ILO, IOM, IMF, World Bank and ADB are increasingly emphasizing migrants’ remittance as tool to promote development.

According to a report by economist Dilip Ratha in Global Development Finance 2003, an important annual World Bank publication, worker’s remittances back to developing countries reached $ 72.3 billion in 2001 and generally exceed official development assistance given by governments directly to low income countries or through multilateral institutions. “Remittances are often invested by the recipients, particularly in countries with sound economic policies”, writes Ratha.

Remittances are important at both macro-micro-economic levels. They increase both the income of the recipient and the foreign exchange reserves of the recipient’s country. “If remittances are invested, they contribute to output growth, and if they are consumed, then also they generate positive multiplier effects “, notes Ratha.

Bangladesh is a huge labor surplus country. On an average, 2, 50,000 people annually (1995-2003) migrate to take up overseas employment flow of migrant workers is associated with growing flow of remittance to Bangladesh. In 2002, it accounted for 2% of the official remittance to South Asia. Since the late 1990s, successive governments of Bangladesh, realizing the importance of remittance to the economy, have undertaken different macro-economic reforms to encourage official flow of remittance. The 7th parliamentary government has established a new ministry entitled Expatriates Welfare and Overseas Employment (EWOE) to ensure efficient management of migration sector in Bangladesh.

Increase in migrant flow is associated with increase in flow in remittances. Remittances are single largest sources of foreign exchange earnings of our country. It has been reported recently that Bangladesh’s remittance inflow maintained its inclination, growing around 223 percent during July-April period of the 2005-2006 financial year.

Global figures show that, Non-resident Bangladeshis (NRBs) sent home 3.89 billion US Dollar in the first 10 months of the current financial year (July2005-June 2006) while the amount was 3.19 billion US Dollar during the same period of last fiscal year according to statistics of Bangladesh Bank (BB), The central bank of the country

International remittances come mainly from three large, but distinct type of migrant.

Firstly, there is an important, mainly American and British, Diasporas of well-educated, high or middle-income earners.

Secondly, there is a Diaspora of Bangladeshi origin, in the same countries, and other industrialized countries, belonging to the low income or unemployed segments of the population.

Thirdly, there is a major group of migrant laborers, residing for a specific period in Middle Eastern, South-East Asian and some industrialized countries. These migration movements are not unique for Bangladesh, but shows similarities with other South and East Asian countries.

Two types of foreign remittances are-

Foreign Inward remittance

Foreign Outward remittance

Figure 4-1: Types of Foreign Remittance

Inward foreign Remittance

Outward foreign Remittance

4.1 Inward foreign remittance:

Remittance comes from foreign countries to our country is called inward remittance. The term “Inward Remittances” includes not only remittance by T.T, M.T, Drafts etc, but also purchases of bills, purchases of drafts under Travelers’ Letters of Credit and purchases of Travelers’ Cheques. Basically these are the formal channels of receiving inward remittance.

4.1.1 Purpose of Inward Foreign Remittance:

1. Family maintenance

2. Realization of Export Proceeds

Donation

Indenting Commission

Gift

Export brokers commission etc

4.1.2 Modes of Inward Remittance:

Figure 4-2: Modes of Inward Remittance

4.1.3 Cancellation of Inward Remittance:

In the event of any inward remittance which has already been reported to the Bangladesh Bank, being subsequently cancelled, either in full or in port, because of non-availability of beneficiary.

Authorized Dealers must report the cancellation of the inward remittance as an Outward remittance on form ‘T/M’. A letter giving the following particulars should support the return in which the reversal of the transaction as reported:

The date of the return in which the inward remittance was reported

The name and address of the beneficiary

The mount of the purchase as effected originally

The amount Cancelled

Reasons for cancellation

4.1.4 Reporting to Bangladesh Bank:

On the last working day of each month the transaction during the month to be reported to Bangladesh Bank through the following scheduled:

Schedule J-I/0- for Tk 5,000/- & above.

Inward Remittance Voucher-I/04 for below Tk 5,000/-

4.2 Foreign Outward Remittance:

Remittance from our country to foreign countries is called outward foreign remittance. All remittances from Bangladesh to a foreign currency or local currency credited to on resident Taka accounts of foreign banks or convertible Taka accounts constitute outward remittances of foreign exchange. On the other word, sales of foreign currency by the authorized dealer or formal channels may be addressed as outward remittance. The authorized dealers must utmost caution to ensure that foreign currencies

Remitted or released by them are used only for the purpose for which they are released. Outward remittance may be made by appropriate method to the country to which remittance is authorized. The authorized dealer on behalf of Bangladesh Bank approves most outward remittance.

4.2.1 Purpose of Outward Foreign Remittance:

Travel

Medical treatment

Attending seminar

Educational purpose

Balance amount of F.C account

Profit of foreign companies

Technical assistance

New exporters up to USD 6000/- for business promotion

F.C. remittance can be made for fare, exhibition from export retention quota.

4.2.2Modes of Outward remittance:

Outward remittance in favor of beneficiaries outside Bangladesh may be made in any of the following manners-

Figure 4-3: Modes of Outward Remittance

4.2.3 Reporting to Bangladesh Bank Regarding Cancellation:

In the event of any inward remittance which has already been reported to the Bangladesh Bank, being subsequently cancelled, either in full or in port, because of non-availability of beneficiary.

Authorized Dealers must report the cancellation of the inward remittance as an Outward remittance on form ‘T/M’. A letter giving the following particulars should support the return in which the reversal of the transaction as reported:

1. The date of the return in which the inward remittance was reported

2. The name and address of the applicant

3. The mount of the purchase as effected originally

4. The amount Cancelled

5. Reasons for cancellation

4.3 Formal channel:

Fund transfer from one country to another country through official channels, i.e. banking channel, post office and other private service channels, such as- Western money order, Money Gram, Neno money order etc.

Official channels refer to demand drafts issued by a bank or an exchange house, traveler’s Cheques telegraphic transfers, postal orders accounts transfer facilities and electronic transfers. Of these, demand drafts are most popular. Expatriates and migrants using official channels have quite a few options. Firstly they can send money from a bank in the destination country to a bank in Bangladesh. The former bank must have correspondent relationship with the latter secondly; they can send money through branches and subsidiaries of a Bangladeshi bank in the destination country. Thirdly, money can be remitted through exchange houses or banks in the destination country with which a Bangladeshi bank and a Taka drawing arrangement. Due to the direct link between the bank or exchange house in the destination country and the one in Bangladesh, in the last two cases the transaction time should be shorter. The Bangladesh financial system consists of the Bangladesh Bank (BB), Nationalized Commercial Banks (NCB), and government owned specialized banks, private commercial banks (PCB), foreign banks and non-bank financial institutions. The Bangladesh Bank is the central bank of Bangladesh, which supervises and regulates all the other banks. In order to deal with foreign exchange, banks need to authorize by the Bangladesh Bank. Banks that are allowed to deal with foreign exchange either has their own exchange branches in the destination countries or link up with international banks or money exchange companies, like, Western Union, Money Gram. Importantly private banks are not allowed to have branches in cities abroad here as NCB’s already have branches. However, they can have correspondent banks.

4.3.1 Significance of foreign remittance through formal channel:

Definitely, formal channel should be the one and only way of receiving and sending remittance or transferring funds. Importance of formal channel can be described as-

(1). Capital increase:

In Bangladesh, one of the most important factors is- to increase capital of the country. To increase the country’s capital, investment is needed in the business and industrial sectors. By increase of FDI (Foreign Direct Investment) and non- residents investment in the share market through formal channel, a businesses could desire more capital, which will increase the capital of Bangladesh.

(2). Reserve of foreign currency:

Presently the reserve of foreign currency in Bangladesh through formal channel is only 7.7%, which is the very small amount than the other developing countries. That’s why; the country depends on foreign loans and grants. The increase of inward foreign remittance can decrease the dependence. On the other hand, it will increase the reservation of foreign currency as well as local currency. So, the formal remitting channel increases the reservation of foreign currency in the country.

(3) Balance of payment:

Balance of payment means visible and invisible item’s transaction of a country. If a transaction earns foreign currencies for the nation, it is recorded as plus item or positive item. Again if a transaction involves spending of foreign currency and the economic condition will be stronger. From that reserve foreign fund a country will be able to make payment of the negative items. So, the balance of payment will be favorable for the country.

(4) Economic plan:

Without a good economic plan, a country cannot make development. To make a strong, suitable economic plan, capital is essential. And to increase capital, currency reserve of the country needed to increase. Thus, the formal remitting channel could be a solution to increase currency reserve.

(5) Strong socio- economic structure:

In case of sending remittance through banking channel, the government holds a strong economic base which strength’s the infrastructure more effectively.

(6) Record of foreign remittance:

By sending remittance through formal channel, Central Bank (i.e. Bangladesh Bank) could keep record of total inward and outward remittance of the country each year.

This statistical record helps to identify the economic and financial condition of the country.

(7) Customer identification:

Through the formal channel, all the authorized dealers properly identify and justify their customers when they remit funds. This identification is a strong barrier of money laundering.

(8) Co-operative with the Government:

Through the formal channel remitters pay Tax to the Government which the most important revenue source of the country. These Tax amount utilized in the different development sectors of the country. Not only the Government but also all the citizens of the country need to participate in the economic and social welfare of country. By using the formal channel of remittance citizens should co-operate with the Government, which will help to stop activities.

4.4 Informal channel:

Fund transfer from one country to another country through hand-by-hand or over telephone in an unofficial channel like as “”Hundy”. Haque (1992) comments, remittance colleted by informal “Hundi” rings operating in Middle East countries and UK are also used to finance illegal trade and transactions.

Islam (2000) observes that a informal channel is needed for illegal trade of goods, as well as gold and drugs into Bangladesh, and therefore helping the ever- present problem of capital flight out of Bangladesh.

Figure 4-5: Informal Transaction Channel

Hundi system is the most important informal way in which money is transferred to Bangladesh. In the hundi system the migrant gives money to an intermediary, who contacts an agent in Bangladesh. The agent in Bangladesh is responsible for giving the equivalent of the money that the migrant also given to the intermediary to the recipient in Bangladesh. An informal exchange rate is used to determine the amount of money the recipient gets. The recipient can take the money from the agent by using a code that s/he receives from the migrant. Because there are no official documents used in the process- although informally it is often documented- the system is clearly based on trust.

Criminal use informal channel for moving money abroad because of-

Dealing in arms & ammunition

Drug trafficking

Financing terrorist activities

Evasion of exchange regulations/control

Evasion of taxation.

4.4.1 Money Laundering

Bangladesh enacted the Anti-Money Laundering Act (the “Act”) in 2002. Money laundering has been defined in the Act as a) directly or indirectly acquiring assets in an illegal way; and b) the transfer, conversion and concealment of assets acquired directly or indirectly in an illegal way. This definition was modified by the enactment of The Money Laundering Prevention Ordinance 2008 on 29 April 2008. The definition has been extended to cover various processes through which the crime is being committed. Section 2(k) of the law provides the definition of money laundering, which modifies the previous definition by extending it to include predicate offences and to the transfer of concealed money to other countries from Bangladesh or receiving such money from other countries into Bangladesh.

The money laundering offences in Bangladesh are:

It is an offence for any person to illegally conceal, retain, transfer, remit or invest in moveable or immovable property even when it is earned through legitimate means. The person concerned can defend himself if he can prove that the offence was committed without his knowledge or it occurred despite his best efforts to prevent it.

It is an offence for any individual or entity to provide assistance to a criminal to obtain, retain, transfer, remit, conceal or invest in moveable or immovable property if that person knows or suspects that the property is a proceed of criminal conduct.

It is an offence for banks, financial institutions and other institutions engaged in financial activities not to retain identification and transaction records of their customers.

It is an offence for banks, financial institutions and other institutions engaged in financial activities not to report the knowledge or suspicion of money laundering to the Bangladesh Bank as soon as reasonably practicable after obtaining knowledge of such information or suspicion.

It is an offence for anyone to prejudice an investigation by informing i.e. tipping off the person who is the subject of a suspicion, or any third party, that a report has been made or that the authorities are acting or are proposing to act in connection with an investigation into money laundering. Preliminary enquiries of a customer to verify identity or to ascertain the source of funds or the precise nature of the transaction undertaken will not trigger a tipping off offence before a report has been submitted in respect of that customer unless the enquirer knows that an investigation is underway or that the enquiries are likely to prejudice an investigation. Where it is known or suspected that a suspicious transaction report has already been disclosed to the authorities and it becomes necessary to make further enquiries, care should be taken to ensure that customers do not become aware that their names have been brought to the attention of the law enforcement agencies.

It is an offence for any person to violate any freezing order issued by the Court based on an application made by the Bangladesh Bank.

It is an offence if a person refuses to cooperate with the enquiry officer during the process of the investigation unless he has reasonable grounds to so refuse

4.4.2 Money Laundering Process:

Money laundering process refers to illegal receipt or transfer of fund from one place to another. This process involves not only the banking system of the county but also non-banking system. According to “Money Laundering law (2002), money laundering means a) Earnings or receiving properties through direct or indirect illegal activities, (b) Receiving of properties legally or illegally which may be transferred, transformed, hiding in a place or helping to do so illegally.

GPML, United Nation (2003) described that money laundering system has a dynamic three-stage process that requires; firstly, moving the funds direct association with the crime; Secondly, disguising the foil pursuit; and third, making the money available to the criminal once again with the occupational and geographic origins hidden from view.

(b) Layering: At this level, money is often sent from one country to another, and then broken up into a variety of investments, which are moved frequently to evade detection.

(c) Integration: In this stage, funds have been fully assimilated into the legal economy. The money laundering process is basically transferred of fund through illegal process. Suppose “A” is a foreign remitter, and wants to send foreign remittance to “B”. “A” contracts with “X” who is a foreign party, related with illegal transfer of fund. “X” has arrangement with “Y”, who is a local party and related with same type of illegal activities. When “A” pay foreign currency to “X” for the purpose of remit to “B”, then “X” will make phone call to “Y”, the local party and will give instruction to pay amount of local currency against foreign currency. Then “Y” will pay to “B” the actual beneficiary. By this process, both parties do not have to pay tax or vat to Government. So, Government losses a big amount of revenue. On the other hand, remitter has to pay more foreign currency against exchange rate and services charge of the parties.

Figure 4-7: Money Laundering Process

4.4.3 Problems Create Due to Use of Informal Channel:

Using the informal channel basically means criminal activities, which are strictly forbidden by the law of Bangladesh Bank, issued by the Government. The people who uses informal channel some problems create in the economy of the country. These are:

Funds that are laundered through banks & other financial institutions threat the integrity and stability of financial system and even weaken the government.

Significant amount of illegal proceeds invests in the real estate.

Avoidance of local taxes creates a great amount of revenue loss for the country.

Informal channel of transfer money can create liquidity problem.

Mysterious changes in demand of money and increase of volatility in the international capital flows, interest and exchanger rate may occur due to use of informal channel.

Use of informal channel may create liquidity problem on Banks.

4.5 Different types of Scheme increase the flow of foreign remittance:

For attracting remittance, Government and other Banking institutions introduced different types of interest bearing schemes or bonds, which are helping to increase the flow of foreign remittance in the country. The schemes are-

The general public participates in the share market to strengthen the economy more effective. A businessman could not raise his business only with his own source of income. That’s why, he need to surplus earning to set up the business.

Another reason of increasing foreign remittance is the high participation of non-resident Bangladeshi on the stock market because of some facilities.

Facilities provided for the non-resident Bangladeshis are-

a) Non-residents are free to invest in shares and securities quoted in the stock exchange, with foreign exchange sent or bought into Bangladesh.

b) There is a reservation quota of 25% to 30% for the non-resident Bangladeshis.

c) Non-residents may also invest in new public issues of Bangladeshi shares or securities even if these are not listed in stock exchange in Bangladesh. In such cases investors are not required to transact through any registered broker or member of stock market.

e) Permission of Bangladesh Bank is not required for issue and transfer of shares in favor of non-residents against their investments in joint venture in Bangladesh.

f) Up too US$50000 investors will be titled as VIP.

g) Non-resident shareholders can freely transfer their shares to other non-residents.

Because of these facilities the non-residents are becoming interested in the share market, and buying & selling share by converting foreign currencies. So, foreign currency is increasing in Bangladesh.

4.5.2 Easy and Quick Transfer of Fund Through Official Channels Increases Foreign Remittance:

Due to SWIFT, Government Banks and agencies, e-commerce and others foreign remittance comes faster to the beneficiary. Besides these banking channels, other private agencies like- western union money transfer, neon money order etc. are giving good services with lucrative exchange rate (which is more than the BC selling rate) to the beneficiary which ultimately increases the foreign remittance through formal channel.

Complexity is one of the major reason for which people were tend to avoid formal banking channel and involved in illegal activities. In the past years, exchange rate was fixed by the Bangladesh Bank. On the other hand, if the remitter sent money through informal channel like- “Hundi”, the beneficiary could get more currency due to higher exchange rate in the black market. But now, exchange rate has become floating i.e. the market is open. So, banking institution can easily offer high exchange rate and can pay more convertible currency to the beneficiary, which ultimately decreases the complexity.

Government policy development like thinking about the globalization and introducing favorable rules and regulations opened a new mission for the bank and other financial institutions to increase inward foreign currency. Even the FDI increased a huge amount due to favorable govt. policies.

For the weak infrastructure of the financial institutions, remitters were not interested to send money by banking channel.

It was time consuming to send remittance through formal channel. Now, the financial institutions have restructured their channels and promises to send money to the beneficiary within 48 hours.

Complexity arises when remittances channelized through third bank. When the remitter’s bank and the beneficiary’s bank are different, the n payment sometimes channelized through third bank. In this case, it takes 3 to 4 days some times 7 to 8 days to receive the payment. But the banks are trying to avoid this complexity, send money to beneficiary as early as possible.

Lack of electronic media is one of the barriers, which raises complexity. Now, most of the private banks introduced online banking system. By online banking system, banks can credit beneficiary’s account within two minutes and the beneficiary can receive money quickly. Again, the development of E-commerce, ATM service, Visa credit card etc. people can receive money time to time.

Non-residents can get the benefit of high exchange rate against US dollar if they send remittance through private authorized agencies. The high exchange rate provides the facilities of more Bangladeshi TK against US Dollar. These authorized agencies have arrangement with different banks of Bangladesh who maintain “Nostro Account”. The authorized agencies usually offer more than the T.T Clean Rate and keep some charge say-$2 to $3 from the remitter which intensity is to increase inflow of foreign currency through formal channel.

Jamuna Bank has arrangement with “Money Gram”, a private agency by which non-resident remit their amount to the beneficiary. JBL maintains “Nostro Account’ with nineteen correspondent banks of the world. Through the “Money Gram “remitters send their payment in favor of the beneficiary. Then “ Money Gram ” place that remitted amount to Jamuna Bank’s ‘Nostro Account’, for example- Citi Bank NA, NY, then that bank passes that remittance to JBL and JBL debit their ‘Nostro Account” and pay the beneficiary at T.T Clean Rate. Thus, this channel becomes more cost effective to the remitter.

Through the informal channel the beneficiary will not get more than T.T. Clean Rate rather the remitter has to pay more foreign currency against local currency payments. But, this way is totally illegal and due to this processes Government losses a big amount of revenue.

So the effective cost will be lower if they send remittance through formal channel. This advantage increases encouragement to the remitters to remit fund through official channels.

The wages earners remit their funds in Taka draft through exchange house. The exchange house receives equivalent foreign currency from the remitter and then issues Taka draft for the equivalent amount of Taka. The exchange house remit US Dollar in Bangladesh to their “Vostro Account” maintains in Bangladeshi Banks. The Bangladeshi banks purchase this USD and arrange to pay the value of Taka draft to the beneficiary upon presentation of Taka draft issued by exchange house. This system extends service to a remote area of Bangladesh. As a result the family members of the wage earners get service at their doorstep even though living at remote village. So, the remitters feel secure to send money through normal channels and tend to use formal channels.

4.5.6 Government Steps Are Helping to Increase Foreign Currency:

Various facilities provided by the Government for the Non-resident Bangladeshi depositors or investors increases the foreign currency reservation. Government has taken some steps –

Competitive interest rate for wage earners accounts must be initiated.

Web page launching by Government with highlighting various facilities for the non-resident Bangladeshis.

Different seminar organization to stop money laundering, smuggling, illegal activities etc. by Bangladesh Bank as instruction of the Government.

Introducing different schemes for the non-resident Bangladeshis.

Controlling over-invoice or under-invoice by the Bangladesh Bank as per Government instruction.

4.6 Remittance as a Product of Banking Industry:

Remittance service has been proved as a major revenue generator. Many banks in Bangladesh are involved in remittance business. Remittance collected by banks is used for different business like export-import business, foreign exchange selling, commission etc. according to the Bangladesh Bank statistical data; the leading bank in remittance business is Sonali Bank. Other then Sonali Bank, Janata Bank, Agrani Bank, Uttara Bank, Pubali Bank is also close to the market leader. Among the private banks Islami Bank is leading the way.

4.6.1 Sonali Bank:

More than 35% of homebound remittances are routed through Sonali Bank for excellent personalized services and wide network of foreign inlets and domestic outlets. Remittances can be sent to all the one thousand two hundred ninety four local branches of the bank spreading over the urban and remote rural parts of Bangladesh. To facilitate homebound remittance, the bank has two subsidiary companies, one in USA and another one in UK. Besides, it has one representative office in Saudi Arabia and twenty-three agency offices in other Middle East countries.

Sonali Bank has made arrangements to deposit /pay remittance money to the beneficiaries within forty-eight hours on receipt of the remittance from abroad. In 2008, Sonali Bank was collected 796,019.54 thousand USD. Most of the remittance came from Saudi Arabia, United States and UK.

Below Year-wise remittance collected by Sonali Bank is give

Inward remittances in Sonali Bank (In Thousand US$)

Table 4-4: Inward remittances in Sonali Bank

Year

US$

2003

603,448.27

2004

734,137.93

2005

740,862.06

2006

741,551.72

2007

755,689.59

2008

796,019,54

Sonali Bank collects remittance through TT and DD. About 60% of the transaction is done through DD, through TT is more convenient and quick. Due to higher charge sometimes people do not prefer TT. All 1,294 branches of Sonali Bank receive remittance. For TT it takes maximum 3 days to credit the amount to the beneficiary account.

4.6.2 Janata Bank:

Janata Bank has 894 branches all over the country. The bank receives remittance through different countries, of which United States, United Kingdom and Saudi Arabia are major contributor. Major corresponding Banks are Al- Zazeera, Doha Bank and Citi Bank NY. The bank receives remittance through TT, DD and Mail Transfer. Mail transfer is slower than TT but cheaper. For mail transfer Janata Bank receives advice from its corresponding Bank and credit its customer account accordingly. The bank provides special benefits to the customers.

These are:

ü Higher exchange rate

ü Investment opportunity

ü Instant query response

ü Small amount charge as commission

Janata bank’s remittance earnings are as follows:

Inward remittance in Janata Bank (In Thousand US$)

Table 4-5: Inward remittance in Janata Bank

Year

US$

2003

168,448.27

2004

189,137.93

2005

222,068.96

2006

232,758.62

2007

247,384.15

2008

260,981.65

Janata bank is trying to encourage the expatriates Bangladeshi to send remittance through its network in various ways. They are using different methods like, brochure, newspaper advertising, website etc. to attract expatriates to remit through their formal channel.

4.6.3 Agrani Bank:

In respect of branches, Agrani Bank is the second largest bank in Bangladesh. It has nine hundred three (903) branches all over the country; among them six hundred fifty (650) branches have ability to receive remittance. The bank receives remittance through different countries, of which Saudi Arabia, Malaysia, United States and Japan are major contributor. Agrani Bank has near about nine hundred correspondents all over the world; among them The Citi Bank, Standard Chartered Bank, JP Morgan are major players. The bank also receives remittance through TT and DD (sometimes electronic transfer is also used).

The year wise remittance earning of Agrani Bank is:

Inward remittance in Agrani Bank (In Thousand US$)

Table 4-6: Inward remittance in Agrani Bank

Year

US$

2003

461,108.62

2004

481,889.65

2005

502,670.68

2006

523,451.72

2007

567,523.41

2008

583,667.83

Agrani Bank has its exchange house one in Singapore. It has also special correspondent’s arrangement with 18 other exchange houses in Middle East countries. Like public bank, the bank gives remitter the facility to open account from abroad. It also gives the remitter the facility to supply statement of account as desired by the remitters. He money is directly credited to that particular account. Furthermore the bank does not charge any service charge and the exchange rate is also higher than the Bangladesh Bank rate.

4.7 Remittance Process at Jamuna Bank Limited:

Transfer of fund from one country to another country goes through a process, which is known as remitting process. JBL has Forty three (43) domestic branches. The bank has correspondent relationship with sixty foreign banks and maintaining Nostro Account in US$ with those Banks. Bangladeshi expatriates are sending foreign remittances to their local beneficiaries through that Nostro Account. When a Bangladeshi expatriate remit the fund through different country’s banks to their Nostro Account with JBL, JBL’s head office international division receives telex message and the remittance section records the advice generate the advice letter to the respective branch of JBL. The branch will decode the test, verify signature and check the account number and name of the beneficiary. After full satisfaction, the branch transfers the amount to the account of the beneficiary and intimates the beneficiary accordingly. Sometimes the complexity arises, if JBL has no branch where the beneficiary maintains his account. JBL has to take the help of a third Bank who has branch office in that particular place (in most of the cases it is Sonali Bank).

Figure 4-8: remitting process of Jamuna Bank Limited

4.8 Remittance at Jamuna Bank Limited:

From the very beginning of the business, Jamuna Bank Limited (JBL) is involved with remittance processing. JBL started its remittance business through DD since 2001 and Neno Money Order from 2003.

The different ways of disbursement of remitting fund that Jamuna Bank uses are:

PO (Pay Order)

DD (Demand Draft)

TT (Telegraphic Transfer)

4.8.1 Pay Order (PO):

Pay order is a system of making payments that were drawn on the bank issuing them. There is no sort of fraud or any kind of cheque bouncing. A pay order is issued within the city, which is the member (Bank) of the Bangladesh Bank clearing house (metro city). It is issued the client, who have the account relationship with the bank, by debiting the clients account and credit bills account payable. In case of non-customer, pay order amount and commission were receipt in cash and kept in the daily suspense account until payments made through clearing house.

When the clients submit PO in their specific bank, the bank then send it to the clearinghouse for collection. And as it was receipt by the member (Issuing bank) of the clearinghouse, then they verify it and send back to the respecting bank and payment made by debiting the accounts payable. Entering in voucher through fund transfer system held these transactions.

4.8.2 Demand Draft:

A method used by individuals to make transfer payments from one bank account to another. Demand draft is an instrument in writing containing an order of the issuing branch upon another branch known as drawee branch for payment of a certain sum of money to the payee or his order on demand by the beneficiary presenting the draft itself.

Demand drafts are marketed as a relatively secure method for cashing checks also known as “remotely created checks”.

DD is same as PO but it can be drawn on other branches of Jamuna Bank, Sonali Bank Bangladesh Bank. Usually DD is within the country where as PO is within the city.

4.8.3 Telegraph Transfer (TT):

Telegraph is one of the fastest ways of transferring fund. All incoming and outgoing telexes are in the telex room and test key examined by a designated officer. Payment of incoming TT’s is made either issuing DD or PO depending upon the clients’ requirement. All the time TT‘s were issued to clients, who have account relationship with the bank. No TT’s were accepted unless they have the account in the bank.

Above table provides that the remittance amount of JBL is much more less than the other leading banks in the country. As a private commercial bank JBL has fewer branches around the country and does not have any foreign branches. On the other hand, Sonali Bank has foreign branches and the number of branches within the country is more than thousand. The same reason is applicable for Janata and Agrani Bank. But the percentage growth in recent years of JBL is much higher than the other three banks.

In the year 2007 the percentage growth of remittance of JBL was 27.15% and in the year 2008 it was more than 30%. Alternatively, Sonali Bank has 0.92% in 2007 and 0.90% in 2008. In case of Janata Bank the percentage growth was 17.41% in 2007 and 4.81% in 2008. From the percentage growth rate JBL has positive impact in the remittance service.

4.10 SWOT Analysis:

Strengths:

Efficient manpower to discharge faster and quality services that ensures customer retention as well as customer referral.

Satisfactory capital base that ensures lending medium to large loans.

Low infection in loan exposure.

Prospective IT infrastructure. IT infrastructure investment have made a sharp rise to build faster and state of art internal operation as well as customer service

Findings

JBL’s network of foreign inlets and domestic outlets is much wide like other banks that are involved in remittance activities.

JBL has only 43 branches all over Bangladesh, which is not sufficient enough to cover a good quality banking service.

JBL does not have any foreign branch in Narayanganj, which is very important for providing a quality remittance service.

Customer motivation process is not rich in Narayanganj Branch of JBL.

Employee motivation process is not rich in JBL

Promotional activities of JBL are not present in both home and abroad.

JBL does not have any exchange house of its own.

JBL has to take the help of a third bank where it does not have any branch office where the beneficiary maintains his accounts.

Recommendations

After evaluating the whole company thoroughly and by considering the overall industry and competitors I would like to conclude that Jamuna Bank Limited has been successfully created a brand image in the market and is maintaining a competitive position in the market. But still it has some weakness, which can be easily overcome. These weaknesses can be easily overcome by reducing the gap between service expected and service provided.

Enjoying a small portion of the market JBL has much more potential to explore the existing market and utilizing intelligent promotional campaigns they can come over the obstacle of limited loyal customer base and can increase growth of the profit successfully. So to enjoy a larger share of the market they have to be very perfect in their business and not allow the customers to find any weakness in their service. So they should always be competitive, technologically advanced and be creative in the business to maintain this position or to do even better than this.

In the recommendation part I have tried to identify the Remittance areas where JBL has failed to serve up to the standard. In order to improve in these areas; I have tried to make some recommendations to help them in those areas:

JBL management tries to develop their customer service by offering attractive exchange rate for the foreign remitters and also introducing updated online banking system.

The bank can desire more foreign remittance inflow if they are able to reduce charges, commissions and fees related to remittance as well as by making arrangement to credit account within twenty four hours.

Updated online system should be introduced throughout the country to remit the fund more quickly.

Seminars should be organized to create more awareness at the technical level for public officials, judicial and financial sector representatives.

Awareness should be created among the public so that they try avoiding informal channels to remit fund.

More branches should be created over the urban and remote rural parts of Bangladesh.

JBL should give more competitive exchange rate for foreign currency.

Conclusion

The impact of this study would be very high. It has an overview of remittance of Bangladesh with a modest approach of Jamuna Bank Limited contribution in this service area. It has attempted to finds out the foreign remittance process of Jamuna Bank Limited. The study also provides suggestions for better performance in remittance business.

It is no doubt that remittance flow generated by expatriates helps to stabilize the foreign currency reserve of the country, which is important for important for import based countries like Bangladesh. To encourage remittance inflow through formal channel government also introduced different bonds and securities for the expatriates Bangladesh to invest in the country. Lamal and Ali (2002) comments that Bank should asses the need of the customers may be conducted so that they can define their need and provide appropriate banking product specification. Opinion survey is required to identify the need, aspiration of the expatriates and also how they can be utilized their remittance in better way for the country.

As Jamuna Bank Limited is “YOUR PARTNER FOR GROWTH”, it always tries to provide services without any criticize in cost effective way to its target customers. The bank always tries to provide smooth service to the beneficiaries of the foreign remittance. Bangladeshi expatriates as well as foreigners, so that people will encourage remitting the fund through the formal channel.